Wednesday, June 30, 2010

I have never been a fan of horror movies. Some aficionados say that they hit their zenith in my formative years in the 1950’s but I generally avoided them. The real fans often say the best movies were the “Zombie films” and I must say the 1943 classic “I Walked with a Zombie” was memorable and scary. A zombie was a dead creature that was somehow reanimated via voodoo or other intervention.

Over the last 20 years, the term zombie has been used in much business writing. It first surfaced talking about Japanese banks that were overextended. Currently, in the US, it has found some popularity as our financial crisis refuses to go away. Financial writer John Lancaster describes a zombie as “a bank which is dead—insolvent—but has a horrible sort of pseudo-life because it is being allowed to keep trading by an overindulgent government.” As we hear stories of banks not contacting some people a year or more behind on their mortgages we know that there are zombie banks among us. Somebody is clearing hiding something under that scenario.

But what about our industry? Are there zombies in evidence in communications? I would say yes but in a slightly different way. There is no benevolent federal government propping them up to save face or avert a panic, but if you look closely, you can see the lumbering zombies.

A few weeks ago, I traveled north and checked out several small town city newspapers that were dailies. In the past, I never had huge admiration for their editorial product but they did work hard to cover the nation superficially and give solid local coverage. Today, they are mere shells. The national and state news was 100% wire service copy and the local news was scant. The editorial page was vapid and had syndicated columnists to fill in the blank space. One of the papers was only 16 pages. It was sad as it has been around for 140 years but the paper is really a zombie.

There have been zombie radio stations for years and now, with syndicated music, many have but a handful of employees. But the agency world is where there are many zombies in evidence. There are organizations that bill themselves as full service advertising agencies. They have 4-7 full time employees. Creative, conventional media, digital activity and marketing research are all outsourced but in many cases they do not tell their clients. They are in essence consulting firms. There is nothing wrong with being a consultant but when you speak to some of them they all say they will soon claw their way back to full agency status.

Strange charades are played. For new business pitches, the different disciplines are represented by freelancers and comical things often happen when “team” members stumble over each others names or who does what. They also cannot guide their new business prospects to the men’s room! In some cases, the handful of actual agency staffers present all the work, the strategies and the media and the freelancers are never seen.

Please do not misunderstand. There is nothing wrong with consulting firms. Some provide marvelous service and the motley crew of seasoned pros who make up their small roster of players could never work for a conventional agency again. But, many do not sell themselves as such. They would prefer to be zombie agencies rather than tell prospects what they really are. Some candor would help. Yes, they would lose out on some pitches for new business. But, if they told the truth, they could spin their appeal by saying that their small team of battle scarred veterans could pick the best players from each discipline that fit a prospect’s specific needs. Sadly, it rarely happens.

Finally, may I give a nod of admiration to some very small firms that do excellent work for their client base? When a project gets too big or the needs are too specialized they do not hesitate to go outside their walls for help but tell the clients what they are up to from day one. And, I know of two cases where companies with fewer than 10 people still do amazing work across all disciplines. Their real appeal is strong hands on service from agency principals and, no matter their age, they still are eager to learn and respond to change.

So, be careful when screening new agencies. They could be small packages of marvelous dynamite or they could be the zombies among us.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Tuesday, June 22, 2010

Not long ago, I was sharing a very nice lunch with a couple of multi-millionaires. The conversation covered the usual topics—sports, the current state of politics, and the economy. Both of the fellows were slightly older than I, wildly successful, and self made.

After a while, the conversation focused on long term energy alternatives and the U.S. national debt. I remarked about how worried I was about the enormous deficits, both trade and budget, that America was building up. One of the guys swallowed a hunk of salmon, poured another big glass of Sauvignon Blanc and told me not to be concerned. “Things like this will just work themselves out.” I was his guest so I gently responded that we had to pay the $11+ trillion down and start to do it soon. The response could be a slash in spending, higher income taxes or a national sales tax or a combination of all three.

My host said that higher taxes were not politically viable and spending could not really be cut significantly. He repeated that things will simply work themselves out. America had been good to both of my lunch companions and one of them was foreign born. For him, this has truly been the land of opportunity. So, I cut him some slack but do not give myself or most of you the same latitude.

In life, I think that it is true that many, many small issues do indeed “work themselves out.” But macro issues such as an $11 trillion debt that will continue to increase unless we take strong and maybe painful action. The possibility of a looming fiscal crisis cannot simply take care of itself. Some positive steps are needed to turn the situation around.

The same attitude of my affable host is in evidence in the media business. Last week, a reader whom I do not know wrote to me and mentioned that he was a broadcaster in a mid-sized market. He discussed how TV news was soon to make a big rebound in his market. I thought he meant that his station’s share would rise but he wrote back to me insisting that the changes in recent years had been sorted out and now local news was going to come roaring back in the ratings. Reading it, I did not know whether to laugh or cry. We went back and forth via e-mail and I learned that he was deadly serious.

Since late 2008, I have heard several broadcasters say that as soon as the auto advertising comes back to pre-recession levels, everything will be fine for years to come in local TV. People may be buying cars in record levels in a few years but viewing habits will continue to change and fragmentation can only accelerate. So, one cannot depend on auto advertising to bail a station’s sales out for much longer.

In the last few years, I have met dozens of people in the newspaper business and, to a lesser extent magazine industry, who have their own spin but the “things will work themselves out” syndrome is very much in evidence. Their companies are hemorrhaging cash but they smile and say that the future will take care of itself. This is said as layoffs continue, and young people get their news online and, increasingly, so do their parents.

In ad agencies, the line that I hear the most is that “we just need one nice new business win and everything will be back to normal.” I will admit that agencies are a bit like a movie studio and one big hit can bail out a firm for a while. But, the attitude is warped as it ignores the need to shift gears, have your people learn new skills and get your firm positioned for the future that is emerging almost daily.

Clearly, things are changing. The digital world is real and not a flash in the pan. Messages will get shorter in many cases and be accessed across platforms that none of us can imagine at present. And, importantly, the number of places that you will need to be to launch a brand or stay competitive in a noisy category is mind numbing.

So, in a sense, things will work themselves out. In a free economy, inefficient producers eventually get squeezed out and the imaginative and nimble survive and grow stronger. But if you simply sit there, and think that you and your company will be fine, the exciting future that many of us foresee will leave you not only behind but a lot poorer.

May I suggest that you take a hard look at your employer? Many people in conventional media are doing great things and finding new ways to generate revenue and are embracing instead of ignoring the change. If you work for a “things will work themselves out” type, do not run to the exits in this economy but start looking at other options today.

If you would like to write to Don Cole directly, you may contact him at doncolemedia@gmail.com

Friday, June 11, 2010

Several years ago some of you may have read about the change in the Skippy peanut butter jar. What they did was put an indentation on the bottom of the plastic jar that, in effect, removed some peanut butter from it. The old jar was 18 ounces; the new one a mere 16.3. Yet the price per jar stayed the same.

In effect, the new jar allowed Skippy to take a de facto 10% price increase and take it very quietly. By 2008, others hopped on the bandwagon. Kellogg's made cereal boxes thinner for several brands and cut the amount of flakes at the same time while maintaining the old price. Zest deodorant bar got into the act by shaving 1/2 ounce from each bar. Again, the old price remained intact. Few people noticed although in focus groups a surprising number said that they ALWAYS looked at unit price data below the product and knew cost per ounce. I doubt it. When I see people buying Skippy or other package goods, it is usually a parent with a couple of children with them, one running around and one in the cart. They are preoccupied to put it mildly. If a price registers with them from past purchases, they probably drop the item in the cart without another thought.

In Consumer Behavior, this practice is referred to as Coherent Arbitrariness. The researchers say that consumers do not really have a handle on what anything should cost. The sensitivity is to relative prices but not absolute prices. If people really knew about the 10% Skippy increase some would have shifted brands or shopped around a bit in the category. So, cynical marketers can take advantage of this. According to the concept of Coherent Arbitrariness, consumers will play along as long as they do not know there is an increase.

The same concept broadly has been in play in TV pricing for some time. For 7-8 years, the trade press has been full of stories about how network advertisers are complaining that every year they pay more to get less. The price of network inventory crept up each year as ratings for the majority of shows declined. Now, with network broadcast, you have a group that is far more sophisticated than the harried Mom or Dad tossing a jar of Skippy into the grocery cart. They are bidding up the price of the inventory even though the audience is less than it was a year earlier.

But the concept is the same. Someone contacted me recently boasting about how he had paid the same price for a local TV property for the past four years. I laughed and said but the rating has gone down. "Not very much", he countered. I had a friend check and the vehicle audience has shrunk 21% in the four year time frame. So, my acquaintance paid the same out of pocket for several years but the cost per eyeball has risen 21% and the advertising impact is likely diminished to the same degree.

If advertisers and their agents are willing to pay more to get less, it is their business. But a day of reckoning is coming as digital becomes more prominent. Soon, some major players will blink and simply refuse to pay more.

Stay tuned.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Wednesday, June 2, 2010

Over the last year, there has been a lot of buzz regarding the decline of newspaper. I have contributed a tiny bit to it. But if you are a media junkie, as I am, you have also noticed support for newspaper from an unusual source—Google.

It began to get some traction back in December when Google’s CEO Eric Schmidt wrote an op-ed piece in The Wall Street Journal. This was a bit ironic as the Journal’s new owner, Rupert Murdoch, has often pointed at Google as a reason for newspaper’s troubles. In the editorial Schmidt basically said that Google would stand on its head to divert more money to struggling news entities.

In April, Schmidt addressed a news convention and said that he was “convinced that the survival of high quality journalism is essential to the functioning of modern democracy.

We have also heard rumblings that Google is working on methods to help newspaper monetize their products online. Right now, most people agree that the dollars newspapers have generated to date have turned into internet pennies. It is hard to tell exactly what is going on as much of the work appears to be going on at Google during “20 percent time.” This is the time that all Google employees have to work on projects of their own choice and where much of their innovation has come from recently (g-mail, for example, was developed on 20% time).

Some of the test work appears to be centering on pay-walls. Right now, the seasoned players have barriers to non-subscribers firmly in place. You may see a sentence or two of the beginning of an article but have to be a subscriber to see the entire article. Others experiment with allowing for a free article or two or a free day once a month or so. There may be a magic bullet in pay-walls that the brains at Google will find. Maybe not.

There are a lot of structural issues for why newspaper has eroded. The first has been going on for decades. Circulation has faced a relentless decline as people moved to broadcast and cable and now online as their news sources. On-line also hit them with a body blow that few people talk about. Traditionally, 33-40% of a newspaper’s revenue has been contributed by classified ads. That is drying up big time as online sites have become the preferred way to dispose of unwanted merchandise. If you lose that big a piece of your revenue base, you are toast in almost any business.

The other problem is that for a decade people, especially the young, have been conditioned to get information of all kinds, including newspaper, for free online. How effective can an imaginative pay-wall strategy from Google pay off for newspaper if people do not want to pay much of anything?

Why does Google bother? Well, think about it. They are an aggregator of information and a remarkable one. But, if newspaper goes away in several years (with the exception of the Times, the Journal, the Post, a few others), the quality of Google’s content will decline significantly. I realize that some say we bloggers can pick up most of the slack but already the lack of investigative journalism in mid-sized markets is causing alarm among many worried about municipal corruption in some areas.

Without the cost of newsprint, distribution, and union pressman, newspapers could slash expenses radically if they went 100% online. In a few years, a paper could provide you with a customized news summary each day based on your past reading or if they could tap into Facebook with your permission, perhaps show you what your friends are reading. But, to me, there is a still a huge hurdle to overcome. People who are going to have to pay for this service have been getting something close to it for free for a long time. Those in their twenties have never paid for a traditional newspaper. Face it. Those who agree to pay for an online service now tend to be very affluent, elitist or both. Getting the masses to pay for an online paper seems like a tall order in today’s world.

How can newspapers transition to online and not go under while doing it? That is the problem that has to keep publishers up at night these days. Do they have pockets deep enough to wait out the inevitable losses as they morph in to a new entity?

All of us should wish Google well. If any one organization can help unlock some revenue for online newspapers, if is they and perhaps they alone. Still, it will be a very rough sledding.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

About Me

Don Cole has been a media analyst for over 40 years. He was a media director and partner at Doner and Moroch and worked at two other agencies plus Arbitron.
His focus with this blog will be to discuss the rapid changes going on in the advertising industry and especially its impact on broadcast TV, cable TV, and mid-sized and smaller ad agencies.
Don is available to consult or to speak to your organization on a wide variety of topics.